Idle feed of thought on politics, sport, technology and those topics of complete inconsequentiality...

Wednesday, March 08, 2006

Bank profits and household savings

We've heard alot about Kiwibank being out there to help stop these evil offshore banks making huge profits off our backs, and more recently the KiwiSaver scheme to help improve our savings levels (and make buying a first home easier...)

Personally I have one policy I like that would strike at the heart of all three of these. Make all mortgages tax deductable.

The current high level of property price growth is fueled at least partially through the diseconomies of capital costs, in which there is a 39% difference in the interest rates paid by different parties.

Changing this really is a situation that would only be to the detriment of the lawyers and acountants that are required to create the tax deductable structures around investment; and the greatest benefits would be reaped by the poorest sectors of the productive economy, where the greatest competition between buyers and investors is fueled.

The only point on this about which I am somewhat ambivalent is whether this should then always make the capital gain on the house taxable - I have a feeling that this should be so, but could easily be persuaded either way on that one...

Adding weight by showing that there are some amoung us that cleary live one example and preach another.

In real terms the costs are actually minimal to use the structures available. But it's an education and understanding issue, not a wealth issue. For god's sake my 6 year old understands family trusts - how hard can it be.

"A friend of mine".... Owns a house, rents it out and rents elsewhere....

You need to ask yourself one question. Did you buy the house because you love it and want to live in it (in which case it is 'your home' and you have no advantage from tax laws - that is fair) or did you buy the house as an investment ?

Oh back to the 6 yr/old. Trading Trusts and Corporate Trustee's still confuse the shit out of him, but the 9 yr/old kinda gets it. They also question why Maori Trusts have the same tax status as Charitable Trusts.

Vest you house in a Trust, have the Trust declare (via a trust deed) that it is to provide a permanent home for you/your family. This makes the house worthless for a comercial perspective, as it cannot be legally sold. There are pit falls (getting a mortgage is one) but there are also benefits. Needless to say, check it out with a tax advisor, which I am not.

The thing about that is it still only vests $54,000 of the house each year (with partner) and takes 5 years for full benefit.

As opposed to an actual investment home that is 100% straight away. There is still a huge inequality between the developer / landlord and buy to live investment which wil continue to drive an inflationary spiral